Session Learning ObjectiveG

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At the end of the session, the participants should understand what is budget, types of budget and budgeting system in India, process of preparing budget, why is budget classification system important?, Main features of sound and structured Budget classification, relationship between budget classification and chart of accounts, Critical steps in reform of budget (FRBM).

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Session Overview and Structure G

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In these sessions, we will discuss what we mean by budget, types of budget, and budgeting system in India and the related constitutional provisions, rules etc. The instructor will also discuss process of preparing budget, main features of FRBM, and budget classification as per COA.Day 1

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What is budget? Types of budget Budget system in India related constitutional provisions and rules Process of preparing budget Main features of FRBM Budget classification as per COA Exercise

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What is a Budget ? Meaning and Concept:Government has several policies to implement in the overall

task of performing its functions to meet the objectives of social & economic growth. For implementing these policies, it has to spend huge amount of funds on defence, administration, and development, welfare projects & various other relief operations. It is therefore necessary to find out all possible sources of getting funds so that sufficient revenue can be generated to meet the mounting expenditure.

Planning process of assessing revenue & expenditure is termed as Budget.

The term budget is derived from the French word "Budgette" which means a "leather bag" or a "wallet". It is a statement of the financial plan of the government. It shows the income & expenditure of the government during a financial year, which runs generally from 1stApril to 31st March.

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Budget is most important information document of the government. One part of the government's budget is similar to company's annual report. This part presents the overall picture of the financial performance of the government. The second part of the budget presents government's financial plans for the period upto its next budget.

So, every citizen of a nation from the common man to the politician is eager to know about the budget as they would like to get an idea of the :-

Financial performance of the government over the past one year.To know about the financial programmes & policies of the

government for the next one year.To know how their standard of living will be affected by the financial

policies of the government in the next one year. Definitions of Budget:According to Tayler, "Budget is a financial plan of government for a

definite period".According to Rene Stourm, "A budget is a document containing a

preliminary approved plan of public revenues and expenditure".Day 1 Session 2 & 3

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Components of Government Budget:The main components or parts of government budget are explained

below

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1. Revenue BudgetThis financial statement includes the revenue receipts of the government i.e.

revenue collected by way of taxes & other receipts. It also contains the items of expenditure met from such revenue.

(a) Revenue Receipts ↓These are the incomes which are received by the government from all

sources in its ordinary course of governance. These receipts do not create a liability or lead to a reduction in assets.

Revenue receipts are further classified as tax revenue and non-tax revenue.i. Tax Revenue:-Tax revenue consists of the income received from different taxes and other

duties levied by the government. It is a major source of public revenue. Every citizen, by law is bound to pay them and non-payment is punishable.

Taxes are of two types, viz., Direct Taxes and Indirect Taxes.Direct taxes are those taxes which have to be paid by the person on whom

they are levied. Its burden can not be shifted to some one else. E.g. Income tax, property tax, corporation tax, estate duty, etc. are direct taxes. There is no direct benefit to the tax payer.

Indirect taxes are those taxes which are levied on commodities and services and affect the income of a person through their consumption expenditure. Here the burden can be shifted to some other person. E.g. Custom duties, sales tax, services tax, excise duties, etc. are indirect taxes

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ii. Non-Tax Revenue :-Apart from taxes, governments also receive revenue from other non-tax

sources.The non-tax sources of public revenue are as follows :-Fees : The government provides variety of services for which fees have to be

paid. E.g. fees paid for registration of property, births, deaths, etc.Fines and penalties : Fines and penalties are imposed by the government

for not following (violating) the rules and regulations.Profits from public sector enterprises : Many enterprises are owned and

managed by the government. The profits receives from them is an important source of non-tax revenue. For example in India, the Indian Railways, Oil and Natural Gas Commission, Air India, Indian Airlines, etc. are owned by the Government of India. The profit generated by them is a source of revenue to the government.

Gifts and grants : Gifts and grants are received by the government when there are natural calamities like earthquake, floods, famines, etc. Citizens of the country, foreign governments and international organisations like the UNICEF, UNESCO, etc. donate during times of natural calamities.

Special assessment duty : It is a type of levy imposed by the government on the people for getting some special benefit. For example, in a particular locality, if roads are improved, property prices will rise. The Property owners in that locality will benefit due to the appreciation in the value of property. Therefore the government imposes a levy on them which is known as special assessment duties

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(b) Revenue Expenditure ↓i. What is Revenue Expenditure ?Revenue expenditure is the expenditure incurred for the routine,

usual and normal day to day running of government departments and provision of various services to citizens. It includes both development and non-development expenditure of the Central government. Usually expenditures that do not result in the creations of assets are considered revenue expenditure.

ii. Expenses included in Revenue Expenditure :-In general revenue expenditure includes following :-Expenditure by the government on consumption of goods and

services.Expenditure on agricultural and industrial development, scientific

research, education, health and social services.Expenditure on defence and civil administration.Expenditure on exports and external affairs.Grants given to State governments even if some of them may be

used for creation of assets.Payment of interest on loans taken in the previous year.Expenditure on subsidies.

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2. Capital Budget:This part of the budget includes receipts & expenditure on capital

account projected for the next financial year. Capital budget consists of capital receipts & Capital expenditure.

(a) Capital Receipts ↓i. What are Capital Receipts ?Receipts which create a liability or result in a reduction in assets are

called capital receipts. They are obtained by the government by raising funds through borrowings, recovery of loans and disposing of assets.

ii. Items included in Capital Receipts :-The main items of Capital receipts (income) are :-Loans raised by the government from the public through the sale of

bonds and securities. They are called market loans.Borrowings by government from RBI and other financial institutions

through the sale of Treasury bills.Loans and aids received from foreign countries and other international

Organisations like International Monetary Fund (IMF), World Bank, etc.

Receipts from small saving schemes like the National saving scheme, Provident fund, etc.

Recoveries of loans granted to state and union territory governments and other parties.

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(b) Capital Expenditure ↓i. What is Capital Expenditure ? :-Any projected expenditure which is incurred

for creating asset with a long life is capital expenditure. Thus, expenditure on land, machines, equipment, irrigation projects, oil exploration and expenditure by way of investment in long term physical or financial assets are capital expenditure.

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What is a Budget Deficit ? Meaning ↓When the government expenditure exceeds revenues, the

government is having a budget deficit. Thus the budget deficit is the excess of government expenditures over government receipts (income). When the government is running a deficit, it is spending more than it's receipts.

The government finances its deficit mainly by borrowing from the public, through selling bonds, it is also financed by borrowing from the Central Bank.

Types of Budgetary Deficit ↓The different types of budgetary deficit are explained in following

points :-1. Revenue Deficit:Revenue Deficit takes place when the revenue expenditure is more

than revenue receipts. The revenue receipts come from direct & indirect taxes and also by way of non-tax revenue.

The revenue expenditure takes place on account of administrative expenses, interest payment, defence expenditure & subsidies.

Table below indicate revenue deficit of the central government of India.

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2. Budgetary Deficit:Budgetary Deficit is the difference between all receipts and expenditure

of the government, both revenue and capital. This difference is met by the net addition of the treasury bills issued by the RBI and drawing down of cash balances kept with the RBI. The budgetary deficit was called deficit financing by the government of India. This deficit adds to money supply in the economy and, therefore, it can be a major cause of inflationary rise in prices.

3. Fiscal Deficit:Fiscal Deficit is a difference between total expenditure (both revenue and

capital) and revenue receipts plus certain non-debt capital receipts like recovery of loans, proceeds from disinvestment.

In other words, fiscal deficit is equal to budgetary deficit plus governments market borrowings and liabilities. This concept fully reflects the indebtedness of the government and throws light on the extent to which the government has gone beyond its means and the ways in which it has done so

4. Primary Deficit:The fiscal deficit may be decomposed into primary deficit and interest

payment. The primary deficit is obtained by deducting interest payments from the fiscal deficit. Thus, primary deficit is equal to fiscal deficit less interest payments. It indicates the real position of the government finances as it excludes the interest burden of the loans taken in the past.

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5. Monetised Deficit:Monetised Deficit is the sum of the net increase in

holdings of treasury bills of the RBI and its contributions to the market borrowing of the government. It shows the increase in net RBI credit to the government. It creates equivalent increase in high powered money or reserve money in the economy.

Conclusion ↓All these budgetary deficit reveal fiscal imbalance. Fiscal

imbalance & budget deficit result in harmful consequences like mounting inflation, deficit in balance of payment, etc. It has also adversely affect the growth of the economy. The government must introduce fiscal correction policies to overcome the deficit budget and fiscal crisis.Day 1

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Concerned over the worsening of fiscal situation, in 2000, the Government of India had set up a committee to recommend draft legislation for fiscal responsibility. Based on the recommendations of the Committee, Government of India introduced the Fiscal Responsibility and Budget Management (FRBM) Bill in December 2000. In this Bill numerical targets for various fiscal indicators were specified. The Bill was referred to the Parliamentary Standing Committee on Finance. The Standing Committee recommended that the numerical targets proposed in the Bill should be incorporated in the rules to be framed under the Act. Taking into account the recommendations of the Standing Committee, a revised Bill was introduced in April 2003. The Bill was passed in Lok Sabha in May 2003 and in Rajya Sabha in August 2003. After receiving the assent of the President, it became an Act in August 2003. The FRBM Act 2003 was further amended.

The FRBM Bill / Act provides rules for fiscal responsibility of the Central Government. The FRBM Act 2003 (as amended) became effective from July 5, 2004. Under this Act, Rules are framed relating to fiscal responsibility of the Central Government, which came into force on 5th July 2004

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Objectives of FRBM Act 2003 ↓The main objectives of FRBM Bill / Act are :-To reduce fiscal deficitTo adopt prudent debt management.To generate revenue surplus.Features of FRBM Act 2003 ↓1. Revenue DeficitThe first important feature of Amended FRBM bill 2000 or FRBM Act

2003 is that the central government should take certain specific measures related with reduction of revenue deficit.

Measures relating to reduction of revenue deficits are:-The government should reduce revenue deficit by an amount

equivalent to 0.5 percent or more of the GDP at the end of each financial year, beginning with 2004-2005.

The revenue deficit should be reduced to zero within a period of five years ending on March 31, 2009.

Once revenue deficit becomes zero the central government should build up surplus amount of revenue which it may utilised for discharging liabilities in excess of assets.Day 1

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2. Fiscal DeficitThe second important feature of Amended FRBM bill 2000 or FRBM Act

2003 is that the central government should take certain specific measures related with reduction of fiscal deficit.

Measures relating to reduction of fiscal deficits are:-The government should reduce Gross fiscal deficit by an amount

equivalent to 3.3% or more of the GDP at the end of each financial year, beginning with 2004-2005.

The central government should reduce Gross Fiscal deficit to an amount equivalent to 2% of GDP upto March 31 2006.

3. Exceptional GroundsThe third important feature of Amended FRBM bill 2000 or FRBM Act

2003 is that it clearly stated that the revenue deficit and fiscal deficit of the government may exceed the targets specified in the rules only on the grounds of national security or national calamity faced by the country.

4. Public DebtThe fourth important feature of Amended FRBM bill 2000 or FRBM Act

2003 is that the central government should ensure that the total liabilities (including external debt at current exchange rate) should not exceed 9% of GDP for the financial year 2004-2005. There should be progressive reduction of this limit by atleast one percentage point of GDP in each subsequent year.

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5. Borrowing from the RBIThe fifth important feature of Amended FRBM bill 2000 or FRBM Act 2003 is

related with borrowings done by central government from R.B.I. The Amended FRBM bill 2000 or FRBM Act 2003 clearly states that the central government shall not normally borrow from the R.B.I. However the central government may borrow from R.B.I. by way of advances to meet temporary excess of cash payments over the cash receipts during any financial year in accordance with the agreements which may entered into by the government with the R.B.I.

6. Fiscal TransparencyThe sixth important feature of Amended FRBM bill 2000 or FRBM Act 2003 is

related with fiscal transparency. The Amended FRBM bill 2000 or FRBM Act 2003 clearly stated two important measures to ensure greater transparency in fiscal operations of the government.

These two important features are as follows:-The central government should minimize as far as possible secrecy in

preparation of annual budget.The central government at the time of presentation of the annual budget shall

disclose the significant changes in accounting standards, policies and practices likely to affect the computation of fiscal indicators.

7. Limit On GuaranteesThe seventh important feature of Amended FRBM bill 2000 or FRBM Act

2003 is that it restricts the guarantees given by the central government to 0.5% of GDP in any financial year beginning with 2004-2005.

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8. Medium term fiscal policy statementThe eighth important feature of amended FRBM bill 2000 or

FRBM Act 2003 is that the central government should present medium term fiscal policy statement in both houses of parliament along with annual financial statement. The medium term fiscal policy statement should project specifically for important fiscal indicators.

These fiscal indicators are as follows :-Revenue deficit as percentage of GDP.Fiscal deficit as percentage of GDP.Tax revenue as percentage of GDP.Total outstanding liabilities as percentage of GDP.9. Compliance of rulesFinally the ninth important feature of Amended FRBM bill

2000 or FRBM Act 2003 is related with measures to enforce compliance of rules.

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10. Task force on implementation of FRBM ActFollowing the enactment of FRBM Act, Government constituted a

Task Force headed by Dr. Vijay Kelkar for drawing up the medium term framework for fiscal policies to achieve the FRBM targets.

The task force proposed the following measures :-Widening the tax base through removal of exemptions.An All-India goods and service-tax (GST) on the basis of a "grand

bargain" with States, whereby States will have the concurrent powers to tax service, subject to certain principles that will help foster a national common market.

Income tax exemption limit to be increased to Rs.1,00,000.A two-tire rate structure of 20 percent tax for income of Rs. 1,00,000

to Rs. 4,00,000 and 30% for income above Rs. 4,00,000 for individuals and elimination of standard deduction available to the salaried taxpayer.

A reduction in the corporate income tax to 30% for domestic companies and the reduction in depreciation rates from 25 to 15%.

A 3-tier custom duty rates of 5, 8 and 10% to bring down tariffs to ASEAN levels.

Allocation of greater portion of expenditure to legitimate public goods by revisiting the classification of expenditure.

Empowering panchayats / local bodies through reserve transfer.

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The task force stated that under the reforms measures recommended by it, tax GDP ratio of the central government should be raised from 9.2% in 2003 to 13.2% of GDP in 2008-09. A revenue surplus of 0.2% of GDP is estimated to emerge in 2008-09. Fiscal deficit estimated to fall from 4.8% of GDP in 2003-04 to 2.8% of GDP in 2008-09.

The above features of Amended FRBM bill 2000 or Fiscal Responsibility and Budget Management Act 2003 clearly points out that the government intends to create a strong institutional mechanism to restore fiscal discipline at the level of the central government. Similarly the government wants to introduce greater transparency in fiscal operations of the central government.

Criticism / Limitations of FRBM Act 2003 ↓Though the Fiscal Responsibility and Budget Management Act 2003

or Amended FRBM bill 2000 is a credible effort by the government to fix responsibility on the government to reduce fiscal deficit and bring transparency in fiscal operations of the government it has certain limitations.

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These limitations of Amended FRBM Bill 2000 or FRBM Act pointed out by various economists are as follows :-

1. Target regarding GFD very stringentThe Bill stipulates that by March 31, 2006, the Gross Fiscal Deficit

(GFD) as a proportion of GDP must be 2%. This, of course, means that the government can borrow from the economy only to the extent of 2% of GDP, whatever be the level of savings. Given the present need of government borrowings, 2% limit is very low.

The increase in public investment helps to increase the level of effective demand and increases private investment in the economy. According to Dr. Raja Chelliah the ratio of Gross Fiscal Deficit (GFD) to GDP should be 4% to 5% of GDP as public investment on infrastructure sector is essential to boost economic growth.

2. Neglect of equity and growthAccording to critics the Amended FRBM Bill 2000 or FRBM Act 2003

is heavily loaded against investment in both human development and infrastructure sector. One of the major ommission of amended FRBM Bill 2000 or FRBM Act 2003 was complete absence of any target for time bound minimum improvement in areas of power generation, transport, etc. which is very important both from the point of equity and higher economic growth.

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3. Non-Coverage of State GovernmentsThe provisions of the bill impose restrictions on only the central government

but state governments are out of its scope. But, deficits of state governments are as much or even a greater problem. For instance, the State of Maharashtra has already crossed the deficit of Rs. 1 lakh crore as on December 2004 (the second State after Up to cross deficit of Rs. 1 lakh crore). Therefore, there is a need for fiscal responsibility legislation for the State Governments as well.

4. Neglect of Development NeedsToday, the levels of capital expenditures by the government are miserably low

in India. These capital expenditures increase the efficiency and productivity of private investment and thus contribute to the development process in the country. If Revenue Deficit is to be reduced to zero and GFD to be 2% of GDP as per the requirement of FRBM Bill, it is the capital expenditure which will be sacrificed and thus will hinder further development of the country.

5. Need to Increase RevenueRevenue deficits are determined by the interplay of expenditure and

revenues, both tax and non-tax. Too often, attention gets focused only on the expenditure side of the identity to the neglect of the revenue side. Increasing non-tax revenue requires that public sector services be appropriately priced, which may be difficult as the present society has got used to the subsidised education, health, food items, etc.

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6. Neglect of Social SectorThe FRBM bill does not mention anything relating to social sector

development. However, investment in social sector such as health, education, etc is very vital for the economic development of the nation.

7. Problem of SubsidiesThe government may be able to reduce revenue deficit by reducing

subsidies. However, it is quite likely that the government will be under severe pressure to continue the subsidies. It means the expenditure on the productive areas may be reduced due to subsidies.

8. Stable Growth DeficitChelliah points out that given the household financial savings in

India, the overall fiscal deficit termed as stable growth deficit of the government sector as a whole should be pegged at 6% of GDP with revenue deficit being gradually phased out. Thus, the target of 2% of fiscal deficit GDP ratio stated in FRBM bill is not desirable from the point of view of productive investment according to Chelliah.Day 1

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9. False AssumptionsThe FRBM Bill is based on the following assumptions :-Lower fiscal deficit lead to higher growth.Larger fiscal deficit lead to higher inflationLarger fiscal deficit increase external vulnerability of the economy.These assumptions have been rejected by C.P. Chandrashekhar and Jayanti

Ghosh who have given the following arguments :-If the deficit is in the form of capital expenditure it would contribute to future

growth.Fiscal deficit is not only the cause for higher inflation. During the late 1990s

the rate of inflation has fallen even when the fiscal deficit was as high as 5.5% of GDP.

Higher fiscal deficit need not necessarily cause external crisis. The external vulnerability depends more on capital and trade account convertibility. In India we have managed to build large foreign exchange reserves, though fiscal deficit has not come down.

Conclusion on FRBM Act 2003 The Amended FRBM Bill 2000 or FRBM Act 2003 despite above criticism can

play a very important role in controlling fiscal deficit and in bringing transparency in fiscal operation of the government if it is implemented effectively in letter and spirit by the concerned government.

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INTRODUCTION: (as per Budget Manual of GOI):'Budget System' was introduced in India on 7th April, 1860. James Wilson the

first Indian Finance Member delivered the budget speech expounding the Indian financial policy as an integral whole for the first time (Principles of Civil Government: Akshaya K. Ghosh). Post independence, the first budget was presented on November 26, 1947 by India's first Finance Minister Sri R.K. Shanmugham Chetty. The national independence brought about budgeting reforms with the Government of India primarily through the launching of comprehensive socio economic development through five year plans, divided into Annual Plans.

A sound system of sharing of resources with the States was also established through the successive Finance Commissions. By and large the system in place at present has evolved over a period of time.

The annual exercise of budgeting is a means for detailing the roadmap for efficient use of public resources. Although the Indian Constitution does not mention the term 'Budget', it provides that the President shall in respect of every financial year cause to be laid before both the Houses of Parliament, the House of People (Lok Sabha) and the Council of States (Rajya Sabha), a statement of the estimated receipts and expenditure of the Government for that year. This statement known as the 'Annual Financial Statement' is the main fiscal or budgetary document of the Government.

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The financial year for the Union and the State Governments in India is from April to March. Each financial year is, therefore, spread over two calendar years. The period of financial year as from April to March was introduced in India from 1867. Prior to that, the financial year in India used to commence on 1st May and ended on 30th April (L.K. Jha Committee's Report of the Committee On Change in Financial Year).

L.K. Jha Committee was appointed in May, 1984 to look into the issue of financial year. The Committee while recommending the commencement of financial year from January mainly with reference to the impact of South West monsoon on the economy, had mentioned in their Report that if for any reason, a changeover to the calendar year is not acceptable despite its many advantages, then on balance, it might be best to live with the existing financial year and avoid the problems of transition.

Government of India did not favour any change in the financial year for some of the reasons which are brought out below,-

i. The advantages arising out of the changewould only be marginal in view of theinnumerable considerations in the formulation of budget policies;

(ii) Change in the financial year would upset the collection of data and it might take a long time to return to normalcy in this regard; and

The change would create a large number of problems, as extensive amendments to tax laws and systems, financial procedures relating to expenditure authorization and other matters would become necessary and in that process the administrative machinery would get diverted to problems of transition instead of concentrating on improving the tax collection machinery.

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MEANING AND SCOPE OF THE BUDGET: Meaning:A government budget is defined as a legal document that is passed by

the legislature, and approved by the chief executive-or President. The two basic elements of any budget are the revenues and expenses. Unlike a pure economic budget, Government Budget is designed for optimal allocation of scarce resources taking into account larger socio political considerations.

The main objective of Government financial management is to determine how well the financial and resource management responsibilities have been discharged. This is based amongst others, on a comparison of accomplishments against the fiscal policies and the time bound Government programmes. These fiscal policies and programmes determine the Budget of the Government, through which the amounts of revenue to be raised and the allocation of sums for the respective Government programmes and purposes are set. Budgeting therefore, involves determining for a future time period on what is to be done and achieved, the manner in which it is to be done and the resources required for the same. It requires the broad objectives of the Government to be broken down into detailed work plans for each programme and sub-programme, activity and projects for each unit of the Government organization.

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The Union Budget of India, also referred as the General Budget, is presented each year on the last working day of February by the Finance Minister of India to the Parliament. Article 112 of the Constitution of India stipulates that Government should lay before the Parliament an Annual Financial Statement popularly referred to as 'Budget'. The Union Budget is currently presented through 14 documents, some of which are mandated by the Constitution while others are Explanatory documents.

Budget preparation in India is an iterative process between the Ministry of Finance/Planning Commission and the spending Ministries. It is a combination of top down approach with the Ministry of Finance and the Planning Commission issuing guidelines or communicating instructions to spending Ministries, and a bottom-up approach, wherein the spending Ministries present requests for budget allocation. Some of the salient features of Union Budget are as follows-

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Budget is prepared on Cash Basis:Whatever is expected to be actually received or paid under proper sanction

during a financial year (including arrears of the past years) should be budgeted in that year.

Rule of Lapse: All appropriations granted by the Parliament expire at the end of financial year and no deduction of unspent budget can be appropriated for meeting the demands in the next financial year. Thus, all unutilized funds within the year 'lapse' at the end of the financial year.

Realistic Estimation: It is essential that the provisions in the budget should be restricted to the amount required for actual expenditure. The Finance Ministry is interested in seeing that the Departments do not obtain more/less money than what they really need. If a Department is allotted funds which it does not need, it will deprive some other Department from getting the required resources.

Budget to be on Gross/Net Basis: Budget is prepared both on the gross basis and net basis. The gross figures of receipts and expenditure of the Government are reflected separately for voting by Parliament and the Departments/Ministries are normally not permitted to utilize the receipts or deduct expenditure in their budget proposals. Net basis of budgeting is done in case of some Grants e.g. Defence Ordnance Factories, and Department of Posts wherein the departmental receipts are allowed to be utilized and outlays on gross as well as net basis are reflected.

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Form of Estimates to Correspond to Accounts: It is essential that the form in the budget estimates correspond to that of Government accounts as it is from these accounts, that the performance of the Government is judged and the estimation for subsequent year made. If these are prepared in different forms, financial control will also become difficult.

6. Estimates to be on Departmental Basis:Each Department prepares estimates for receipts and

expenditure separately. Generally one Demand or Grant is allocated in respect of each Ministry/Department. In case of certain large Departments/Ministries more than one Demands for Grants is allocated in terms of General Financial Rules.

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The Budget is presented to the Parliament in such form as the Finance Ministry may decide after considering the suggestions, if any, made by the Estimates Committee. Broadly the Budget documents depict information relating to receipts and expenditure for three years i.e. i. Through Budget Estimates (BE) of receipts and expenditure in respect of Budget year (current financial year);

For the year preceding the Budget year (current year) through Revised Estimates (RE); and

Actuals of the second year proceeding the Budget year.Budget thus sets forth the receipts and the expenditure of the Government for

three consecutive years. The Annual Financial Statement shows the receipts and expenditure of Government in three separate parts under which Government accounts are maintained viz. (i) Consolidated Fund of India (ii) Contingency Fund of India and the (iii) Public Account.

As per Constitutional provisions (Article 112) the Annual Financial Statement has to distinguish expenditure on revenue account from other expenditure. It, therefore, comprises of (i) Revenue budget and (ii) Capital Budget. Broad break-up of expenditure on Plan and Non Plan i.e. expenditure which is part of normal activities of the Government or maintenance expenditure, sectoral allocation of Plan Outlays, details of resources transferred to States and Union Territory Governments are also reflected in the budget documents.

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The expenditure of certain categories, charged on the Consolidated Fund of India and not being subject to the Vote of Parliament are also indicated separately in the Budget. The Demands for Grants show separately the revenue and capital, and the charged and voted expenditure. Similarly, estimates of receipts are classified in the tax and non-tax receipts and also those which are on revenue account and others which are on capital account.

The Union Budget is presented to Parliament in two parts i.e. Railway Budget pertaining to Railway Finance and General Budget which gives an overall picture of financial position of the Government of India including the effect of Railway Budget.

The three Statements presented to the Parliament viz. the Macroeconomic Framework Statement, the Medium Term Fiscal Policy Statement and the Fiscal Policy Strategy Statement Under the FRBM mandate, has further enhanced the scope of Budget to provide an assessment of the growth prospects of the economy, indicate the rolling targets for specific fiscal indicators as well as outline the strategic priorities of the Government in the fiscal area for the ensuing year Day 1

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IMPORTANT CONSTITUTIONAL PROVISIONS RELATED TO BUDGET:

Financial business in Parliament consists of the Budget comprising of General Budget and Railway Budget, Demands for Grant, Vote on Account, Supplementary Demands for Grant, Appropriation Bill and the Finance Bill. The salient Constitutional provisions that shape and guide the budgeting systems and process are outlined in brief as under-

Article 112- Annual Financial Statement:It provides that in respect of every financial year the President shall cause to be

laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, referred to as the "annual financial statement''. The estimates of expenditure shall show separately expenditure charged upon the Consolidated Fund of India; and other expenditure (voted) proposed to be made from the Consolidated Fund of India. The statement shall also distinguish expenditure on revenue account from other (capital) expenditure.

Article 113- Procedure in Parliament with respect to Estimates:It provides that estimates relating to expenditure charged upon the

Consolidated Fund of India shall not be submitted to the vote of Parliament, even though these can be discussed in either House of Parliament. The estimates relating to the 'voted' portion shall be submitted in the form of demands for grants, and the House of the People shall have power to assent, refuse or reduce the amount specified therein. No demand for a grant shall be made except on the recommendation of the President.

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Article 114- Appropriation Bills:After the passing of the demands under Article 113, Appropriation Bill is

introduced in the LokSabha to provide for the appropriation out of the Consolidated Fund of India to

meet the requirements relating to (a) the grants so made by the House of the People; and (b) the expenditure charged on the Consolidated Fund of India but not exceeding in any case the amount shown in the statement previously laid before Parliament. Further, subject to the provisions of articles 115 and 116, no money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law passed in accordance with the provisions of this article.

Article 115- Supplementary, Additional or Excess Grants:If the amount authorized through appropriations for a particular service is found

to be insufficient for the purposes of that year or when a need has arisen during the current financial year for supplementary or additional expenditure upon some new service not contemplated in the annual financial statement for that year, a supplementary demands for grants proposal shall be made before parliament. However, if any money has been spent on any service during a financial year in excess of the amount granted for that service and for that year, demand for such excess, as the case may be is to be laid before both the Houses of Parliament for authorizing (subject to the report of the Public Accounts Committee) the expenditure incurred in excess.

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Article 116- Vote on account, Vote of credit and Exceptional Grant:

The House of the People shall have power relating toVote on Account- to make any grant in advance in respect of the

estimated expenditure for a part of any financial year pending the completion of the parliamentary procedure.

Vote of Credit- to make a grant for meeting an unexpected demand upon the resources of India when on account of the magnitude or the indefinite character of the service the demand cannot be stated with the details ordinarily given in an annual financial statement;

Exceptional Grant- to make provision for an exceptional grant that does not form part of the current service of any financial year;

Parliament shall have power to authorize by law the withdrawal of moneys from the Consolidated Fund of India for the above purposes.

Article 117- Special provisions as to Financial Bills:A Bill or amendment making provision for any of the matters specified

in sub-clauses (a) to (f) of clause (1) of article 110 shall not be introduced or moved except on the recommendation of the President and a Bill making such provision shall not be introduced in the Council of States.

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Article 265- Taxes not to be imposed save by authority of law:No tax shall be levied or collected except by authority of law.Article 266- Consolidated Funds and Public Accounts of India

and of the States:Subject to the provisions of article 267 and to the provisions of this

Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India , all loans raised and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of India", and all revenues received by the Government of a State, all loans raised and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of the State".

All other public moneys received by or on behalf of the Government of India or the Government of a State shall be credited to the public account of India or the public account of the State, as the case may be.

No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution.

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Article 267- Contingency Fund:Parliament may by law establish a Contingency Fund in the nature of

an imprest to be entitled "the Contingency Fund of India" into which shall be paid from time to time such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the President to enable advances to be made by him out of such Fund for the purposes of meeting unforeseen expenditure pending authorization of such expenditure by Parliament by law. under article 115 or article 116.

Similarly, the Legislature of a State may by law establish a Contingency Fund in the nature of an imprest to be entitled "the Contingency Fund of the State".

Article 275- Grants from the Union to certain States:Such sums as Parliament may by law provide shall be charged on the

Consolidated Fund of India in each year as grants-in-aid of the revenues of such States as Parliament may determine to be in need of assistance, and different sums may be fixed for different States. Provided, that after a Finance Commission has been constituted no order shall be made under this clause by the President except after considering the recommendations of the Finance Commission.

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Article 280- Finance Commission:The President shall, within two years from the commencement of this

Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission. It shall be the duty of the Commission to make recommendations to the President relating to—

The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;

The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

(bb) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;

The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;

Any other matter referred to the Commission by the President in the interests of sound finance.

The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

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Article 281- Recommendations of the Finance Commission:The President shall cause every recommendation made by the Finance

Commission under the provisions of this Constitution together with an explanatory memorandum as to the action taken thereon to be laid before each House of Parliament.

Article 292- Borrowing by the Government of India:The executive power of the Union extends to borrowing upon the security of the

Consolidated Fund of India within such limits, if any, as may from time to time be fixed by Parliament by law and to the giving of guarantees within such limits, if any, as may be so fixed.

Article 150- Form of accounts of the Union and of the States:The accounts of the Union and of the States shall be kept in such form as the

President may, on the advice of the Comptroller and Auditor-General of India, prescribe.

Article 151- Audit reports:The reports of the Comptroller and Auditor- General of India relating to the

accounts of the Union shall be submitted to the President, who shall cause them to be laid before each House of Parliament.

Article 109- Special procedure in respect of Money Bills:A Money Bill shall not be introduced in the Council of States. After a Money Bill

has been passed by the House of the People it shall be transmitted to the Council of States for its recommendations and the Council of States shall within a period of fourteen days from the date of its receipt of the Bill return the Bill to the House of the People with its recommendations and the House of the People may thereupon either accept or reject all or any of the recommendations of the Council of States.

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Article 110- Definition of "Money Bills'':A Bill shall be deemed to be a Money Bill if it contains only provisions dealing

with all or any of the following matters, (a) the imposition, abolition, remission, alteration or regulation of any tax; (b) the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India; (c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such Fund; (d) the appropriation of moneys out of the Consolidated Fund of India; (e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of the amount of any such expenditure; (f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or (g) any matter incidental to any of the matters specified in sub clauses (a) to (f).

If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final, and the certificate of the Speaker of the House of the People signed by him that it is a Money Bill, shall be endorsed on every Money Bill when it is transmitted to the Council of States under article 109, and when it is presented to the President for assent under article 111.

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BUDGET FORMULATION AND IMPLEMENTATION (AS PER GFR 2005)Rule 42.(GFR-2005) Financial Year : Financial year of the Government shall

commence on the 1st day of April of each year and end on the 31st day of March of the following year.

Rule 43 (GFR -2005). Presentation of Budget to Parliament : (1) In accordance with the provisions of Article 112 (1) of the Constitution, the

Finance Minister shall arrange to lay before both the Houses of Parliament, an Annual Financial Statement also known as the `Budget' showing the estimated receipts and expenditure of the Central Government in respect of a financial year, before the commencement of that year.

(2) A separate statement of estimated receipts and expenditure relating to the Railways shall similarly be presented to the Parliament by the Ministry of Railways in advance of the Annual Financial Statement. As the receipts and expenditure of the Railways are the receipts and expenditure of the Government, the figures relating to these are included in lump in the Annual Financial Statement.

(3) The provisions for preparation, formulation and submission of budget to the Parliament are contained in Articles 112 to 116 of the Constitution of India.

(4) The Ministry of Finance, Budget Division, shall issue guidelines for preparation of budget estimates from time to time. All the Ministries / Departments shall comply in full with these guidelines.

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Rule 44 (GFR -2005). The budget shall contain the following :-(i) Estimates of all Revenue expected to be raised during the

financial year to which the budget relates. (ii) Estimates of all Expenditure for each programme and project in

that financial year. (iii) Estimates of all interest and debt servicing charges and any

repayments on loans in that financial year. (iv) Any other information as may be prescribed. Rule 45 (GFR -2005). Receipt Estimates : The detailed estimates of

receipts will be prepared by the estimating authorities separately for each Major Head of Account in the prescribed form. For each Major Head, the estimating authority will give the break up of the Minor / Subhead wise estimate along with actuals of the past three years. Where necessary, itemwise break up should also be furnished so as to highlight individual items of significance. Any major variation in estimates with reference to past actuals or / and Budget Estimates will be supported by cogent reasons.

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Rule 46 (GFR -2005). Expenditure estimates : (1) The expenditure estimates shall show separately the sums required to

meet the expenditure Charged on the Consolidated Fund under Article 112 (3) of the Constitution and sums required to meet other expenditure for which a vote of the Lok Sabha is required under Article 113(2) of the Constitution.

(2) The estimates shall also distinguish provisions for expenditure on revenue account from that for other expenditure including expenditure on capital account, on loans by the Government and for repayment of loans, treasury bills and ways and means advances.

(3) The detailed estimates of expenditure will be prepared by the estimating authorities for each unit of appropriation (Sub or Detailed or Object head) under the prescribed Major and Minor Heads of Accounts separately for Plan and Non-Plan expenditure. Estimates should include suitable provision for liabilities of the previous years left unpaid during the relevant year.

(4) The estimates of Plan expenditure will be processed in consultation with the Planning Commission in accordance with the instructions issued by them.

(5) The Revised Estimates of both Plan and Non-Plan expenditure and Budget Estimates for Non-Plan expenditure after being scrutinized by the Financial Advisers and approved by the Secretary of the Administrative Ministry or Department concerned will be forwarded to the Budget Division in the Ministry of Finance in such manner and forms as may be prescribed by them from time to time.

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Rule 47 (GFR -2005). Demands for Grants : (1) The estimates for expenditure for which vote of Lok Sabha is

required shall be in the form of Demand for Grants. (2) Generally, one Demand for Grant is presented in respect of each

Ministry or Department. However, in respect of large Ministries or Departments, more than one Demand is presented. Each Demand normally includes provisions required for a service, i.e. provisions on account of revenue expenditure, capital expenditure, grants to the State and Union Territory Governments and also Loans and Advances relating to the service.

(3) The Demand for Grants shall be presented to Parliament at two levels. The main Demand for Grants are presented to Parliament by the Ministry of Finance, Budget Division along with the Annual Financial Statement while the Detailed Demands for Grants, after consideration by the “Departmentally Related Standing Committee” (DRSC) of the Parliament, are laid on the Table of the Lok Sabha by the concerned Ministries/Departments, a few days in advance of the discussion of the respective Ministry’s/ Departments' Demands in that House. Day 1

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Rule 48 (GFR -2005).. Form of Annual Financial Statement and Demands for Grants : (1) The form of the Annual Financial Statement and Demands for Grants shall be laid

down by the Finance Ministry and no alteration of arrangement or classification shall be made without the approval of that Ministry.

(2) The sub-heads under which provision for expenditure will be made in the Demands for Grants or Appropriation shall be prescribed by the Finance Ministry in consultation with the Administrative Ministry or Department. The authorised sub-heads for expenditure in a year shall be as shown in the Detailed Demands for Grants passed by Parliament and no change shall be made therein without the formal approval of the Finance Ministry.

Rule 49 (GFR -2005).. Acceptance and inclusion of estimates : (1) The estimates of receipts and expenditure of each Ministry / Department will be

scrutinized in the Budget Division of the Ministry of Finance. Finance Secretary or Secretary (Expenditure) may hold meetings with Secretaries or Financial Advisers of Administrative Ministries or Departments to discuss the totality of the requirements of funds for various programmes and schemes, along with receipts of the Ministries or Departments.

(2) The estimates initially submitted by the Departments may undergo some changes as a result of scrutiny in the Budget Division,

Ministry of Finance and deliberations in the pre-budget meetings between the Finance Secretary or Secretary (expenditure) and the Secretary or Financial Adviser of the Department concerned. The final estimates arrived at on the basis of scrutiny and pre-budget meetings will be accepted by the Budget Division, Ministry of Finance and incorporated in the Budget documents

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Rule 50 (GFR -2005).. Vote on Account : (1) The Budget is normally presented to the Parliament on the last day in the

month of February but the corresponding Appropriation Bill seeking authorization of the Parliament to make expenditure in consonance with the Budget proposal is introduced and passed much later i.e. after due deliberation and approval by the Parliament.

(2) Pending the completion of the procedure prescribed in Article 113 of the Constitution for the passing of the Budget, the Finance Ministry may arrange to obtain a `Vote on Account’ to cover expenditure for one month or such longer period as may be necessary in accordance with the provisions of Article 116 of the Constitution. Funds made available under Vote on Account are not to be utilized for expenditure on a `New Service’.

Rule 51 (GFR -2005).. Communication and distribution of grants and appropriations :

After the Appropriation Bill relating to Budget is passed, the Ministry of Finance shall communicate Budget provisions to the Ministries / Departments which, in turn, shall distribute the same to their subordinate formations. The distribution so made shall also be communicated to the respective Pay and Accounts Officers who shall exercise check against the allocation to each subordinate authority.

Rule 60 (GFR-2005). Supplementary Grants : If savings are not available within the Grant to which the payment is required to be debited, or if the expenditure is on “New Service” or “New Instrument of Service” not provided in the budget, necessary Supplementary Grant or Appropriation in accordance with Article 115 (1) of the Constitution should be obtained before payment is authorized

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"CONTROL OF EXPENDITURE AGAINST BUDGET" Rule 52 (GFR -2005).. Responsibility for control of Expenditure : (1) Departments of the Central Government shall be responsible for the

control of expenditure against the sanctioned grants and appropriations placed at their disposal. The control shall be exercised through the Heads of Departments and other Controlling Officers, if any, and Disbursing Officers subordinate to them.

(2) A Grant or Appropriation can be utilised only to cover the charges (including liabilities, if any, of the past year) which are to be paid during the financial year of the Grant or Appropriation and adjusted in the account of the year. No charges against a Grant or Appropriation can be authorized after the expiry of the financial year.

(3) No expenditure shall be incurred which may have the effect of exceeding the total grant or appropriation authorized by Parliament by law for a financial year, except after obtaining a supplementary grant or appropriation or an advance from the Contingency Fund. Since voted and charged portions as also the revenue and capital sections of a Grant / Appropriation are distinct and reappropriation inter se is not permissible, an excess in any one portion or section is treated as an excess in the Grant / Appropriation.

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To have effective control over expenditure by the Departments, Controlling and Disbursing Officers subordinate to them shall follow the procedure given below :-

(i) For drawal of money the Drawing and Disbursing Officer shall :-(a) Prepare and present bills for "charged" and "voted" expenditure

separately. (b) Enter on each bill the complete accounts classifications from major head

down to the object head of account. When a single bill includes charges falling under two or more object heads, the charges shall be distributed accurately over the respective heads.

(c) Enter on each bill the progressive total of expenditure up-to-date under the primary unit of appropriation to which the bill relates, including the amount of the bill on which the entry is made.

(ii) (a) All Disbursing Officers shall maintain a separate expenditure register in Form GFR 9, for allocation under each minor or sub-head of account with which they are concerned.

(b) On the third day of each month, a copy of the entries made in this register during the preceding month shall be sent by the officer maintaining it, to the Head of the Department or other designated Controlling Officer. This statement shall also include adjustment of an inward claim, etc., communicated by Pay and Accounts Officer directly to the DDO (and not to his Grant Controlling Officer). If there are no entries in the register in any month, a 'nil' statement shall be sent.

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(a) The Controlling Officer will maintain a broadsheet in Form GFR 10 to monitor the receipt of the return prescribed in the foregoing sub-clause;

(b) On receipt of the returns from Disbursing Officers, the Controlling Officer shall examine them and satisfy himself :-(aa) that the accounts classification has been properly given; (bb) that progressive expenditure has been properly noted and the available balances worked out correctly;

(cc) that expenditure up-to-date is within the grant or appropriation; and (dd) that the returns have been signed by Disbursing Officers

Where the Controlling Officer finds defects in any of these respects, he shall take steps to rectify the defect.

(iv) When all the returns from the Disbursing Officers for a particular month have been received and found to be in order, the Controlling Officer shall compile a statement in Form GFR 11, in which he will incorporate -

(a) the totals of the figures supplied by Disbursing Officers; (b) the totals taken from his own registers in Form GFR 9; (c) the totals of such adjustments under the various detailed heads as communicated to

him by the Accounts Officer on account of transfer entries and expenditure debited to the grant as a result of settlement of inward account claims and not reckoned by his DDOs.

(v) If any adjustment communicated by the Accounts Officer affects the appropriation at the disposal of a subordinate Disbursing Officer, the fact that the adjustment has been made shall be communicated by the Controlling Officer to the Disbursing Officer concerned.

(vi) On receipt of all the necessary returns, the Head of the Department shall prepare a consolidated account in Form GFR 12, showing the complete expenditure from the grant or appropriation at his disposal upto the end of the preceding month.

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(5) The Head of the Department and the Accounts Officer shall be jointly responsible for the monthly reconciliation of the figures given in the accounts maintained by the Head of the Department with those appearing in the Accounts Officer's books. The procedure for reconciliation shall be as follows :-

I. DDOs shall maintain a Bill Register in Form TR 28-A, and note all bills presented for payment to the PAO in the register. As soon as cheques for the bills presented for

payment are received, these will be noted in the appropriate column of the Bill Register and the DDOs will ensure that the amounts of cheques tally with the net amount of the bills presented. In case any retrenchment is made by the PAO, a note of such retrenchments should be kept against the bill in the remarks column in TR 28-A.

II. The PAOs shall furnish to each of the DDOs including Cheque –drawing DDOs, an extract from the expenditure control register or from the Compilation Sheet every month indicating the expenditure relating to grants controlled by him classified under the various major-minor detailed head of accounts. The statements for May to March should also contain Progressive Figures.

III. On receipt of these extracts from the PAOs, the DDOs should tally the figures received, excluding book adjustments, with the expenditure worked out for the month in the GFR 9 register. Discrepancies, if any, between the two sets of figures should be promptly investigated by the DDO in consultation with the PAO. He will also note in the GFR 9 register particulars of book adjustments advised by the PAO through the monthly statement. Thereafter, the DDO should furnish to the PAO a certificate of agreement of the figures as per his books with those indicated by the PAOs by the last day of the month following the month of accounts.

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IV. The Principal Accounts Officer (or PAO wherever payments, relating to a grant are handled wholly by a PAO) of each Ministry, should send a monthly statement showing the expenditure vis-à-vis the Budget provision under the various heads of accounts, in the prescribed pro forma, to the Heads of Departments responsible for overall control of expenditure against grant of the Ministry as a whole. The figures so communicated by the Principal Accounts Officer (or the PAO concerned) should be compared by the Heads of Departments with those consolidated in Form GFR 12 and differences, if any, should be taken up by the Heads of Departments with the Principal Accounts Officers (or the PAO concerned) for reconciliation. The Head of the Department should furnish a quarterly certificate to the Principal Accounts Officer certifying the correctness of the figures for the quarter by the 15th of the second following month after the end of quarters April-June, July-September, October-December and January-March.

(6) The Departments of the Central Government should obtain from their Heads of Departments and other offices under them the departmental figures of expenditure in Form GFR 12 by the 15th of the month following the month to which the returns relate. The figures relating to Plan and Non-Plan expenditure should be separately shown in these returns. The information so obtained should be posted in register(s) kept for watching the flow of expenditure against the sanctioned grant or appropriation. Progressive totals of expenditure should be worked out for the purpose. If the departmental figures obtained in Form GFR 12 and posted in the register(s), require correction in a subsequent month, Heads of Departments or other offices should make such corrections by making plus or minus entries in the progressive totals. In case the Accounts Office figures which subsequently become available are found to be higher than departmental figures, the former should be assumed to be the correct figures, as appropriation accounts are prepared on the basis of the figures booked in the accounts.

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(7) The Departments of Central Government should also obtain from the Heads of Departments and other authorities under them, statements showing the details of the physical progress of the schemes for which they are responsible. This statement should show the name of the scheme, the Budget provision for each scheme, the progressive expenditure on each scheme, the progress of the scheme in physical terms and the detailed reasons for any shortfalls or excess, both against physical and financial targets.

(8) A Broadsheet in Form GFR 13 should be maintained by the Departments of Central Government or each Head of Department and other authorities directly under them, to watch the prompt receipt of the various returns mentioned above from month to month and to take necessary measures for rectifying any defaults noticed.

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BUDGET DOCUMENTS:The major work undertaken in the Budget Division relates to the

'Scrutiny of Receipt and Expenditure Estimates' in the process of preparation of Budget Estimates, Revised Estimates and the related Statements, Annexes of various budget documents. The detailed estimates of receipts and expenditure are prepared by the Ministries/ Departments in the prescribed forms and furnished to the concerned Sections in the Budget Division. These estimates are scrutinized in detail and further consolidated as part ofprocess of compilation of the Budget and related documents, which are briefly described below.

(a) Annual Financial StatementUnder Article 112 of the Constitution of India, a statement of the

estimated receipts and expenditure of the Government of India in respect of every financial year is laid before Parliament; this is called the 'Annual Financial Statement'. The Annual Financial Statement of a year gives the budget estimate for that year, the budget estimate and the revised estimate for the preceding year and the figures of Accounts of the second preceding year. It shows the net amount of total expenditure under different Major Heads, after excluding the recoveries taken in reduction of expenditure. The form of Annual Financial Statement is prescribed by the Ministry of Finance.

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Government of India have their departmental commercial undertakings (e.g. Railways, Posts, Telecom), whose transactions are reflected in the Annual Budgets of the Central Government. Similarly, Government of India has set up Public Sector Undertakings by contributing to their share capitals by debit to the Consolidated Fund of India. The proposed contribution to their share capital and /or loans proposed to be given to them in any financial year is reflected in the Annual Budget of that year. Similarly, dividends and repayment of loans (including interest) expected from them in any financial year are included in the Annual Financial Statement of that year.

The estimated expenditure included in the Annual Financial Statement shows separately-

(i) The sums required to meet expenditure described in the Constitution of India as expenditure charged upon the Consolidated Fund of India; and

(ii) The sums required to meet other expenditure proposed to be made from the Consolidated Fund of India.

The Annual Financial Statement also exhibits the estimated receipts and expenditure under the Public Accounts and net transactions under the Contingency Fund. The expenditure on Revenue account is distinguished in the Annual Financial Statement from that for other expenditure including expenditure on Capital account, Loans by Government and for Repayment of loans, Treasury Bills and Ways and Means Advances.

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The Annual Financial Statement also includes the following statements-

Statement I: Consolidated Fund of India:(i) Revenue Account- Receipts;(ii) Revenue Account- Disbursements;(iii) Capital Account- Receipts;Capital Account- DisbursementsStatement IA: Disbursements Charged on the Consolidated Fund of

India:This statement includes details of the disbursements 'Charged' on the

Consolidated Fund of India.Statement II: Contingency Fund of India:This statement provides details on the Net position relating to the

transactions under the Contingency Fund of India.Statement III: Public Account of India

ReceiptsDisbursements

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Statement on Receipts and expenditure of Union Territories without Legislature:This is a statement giving budgetary details of tax and non tax revenues of Union

Territories without legislature along with the budgeted expenditure provisions against Revenue, Capital and Loans and Advances heads.

(b) Demands for GrantsThe estimates of expenditure from the Consolidated Fund included in the Budget

Statements and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants. Normally a separate demand is required to be presented for each Department or the major services under the control of a Ministry/Department. Each demand normally includes the total provisions required for a service, i.e. provisions on account of revenue expenditure, capital expenditure, grants to States and Union Territories and also loans and advances relating to that service. Estimates of expenditure included in the Demands for grants are for gross amounts. The receipts and recoveries taken in reduction of expenditure are shown by way of below the line entries.

The estimates of expenditure in the Demands for Grants contain those amounts for which the vote of Lok Sabha is required separately, and is called 'voted' expenditure. The estimate for 'charged' expenditure under any head for which vote of the Lok Sabha is not required, are also indicated in the Demands for Grants. When there is no estimate for expenditure under any head requiring vote of Lok Sabha, then it is not called a Demand, but it is called 'Appropriation' and included as such in the list of Demands.

Keeping in view the need for clarity, the serial number of Demands for Grants and their coverage are decided by the Ministry of Finance in the Budget Division. The estimates in the Demands for Grants are shown by Major Heads, and the break-up under each Major Head shows the estimates under 'charged' and 'voted', 'Revenue' and 'Capital' and 'Plan' and 'Non-Plan'. The Demands for Grants are submitted to the Parliament along with the Annual Financial Statement.

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RECOMMENDATIONS OF THE ESTIMATES COMMITTEE ON THE FORM AND CONTENTS OF DEMANDS FOR GRANTS:

The salient recommendations of the Estimates Committee relating to Demands for Grants in their 24th Report (1972-73) are:

The provisions relating to a service on Revenue Account as well as on Capital Account (including Grants in aid to States and UTs) may be included in one Demand including loans and advances relating to that service, subject to the condition that there should be no reappropriation of funds between Revenue and Capital;

There should be separate Demands for Grants for organizations like Indian Council of Agricultural Research and Council of Scientific and Industrial Research etc. which are mainly financed by Government involving substantial amounts;

The provision for Secretariat proper of the Ministry/Department may continue to be shown in a separate Demand but where due to unavoidable reasons the expenditure on Secretariat is included in a composite Demand, the expenditure on the Secretariat should be mentioned clearly and pointedly as

distinct from expenditure on activities of the Ministries/Departments;In the Demands for Grants, stress is laid on major programmes and activities of the Department

highlighting those aspects of the Budget which are important, for an appreciation of the resource allocation at the national level. The information about the activities are covered by way of Notes;

An Annexure is appended to the Demands for Grants listing items of 'New Service'/New Instruments of Service' for which provision is included in the Budget Estimates in pursuance to the recommendations made by the Public Accounts Committee in their Eleventh Report (Third Lok Sabha). Comprehensive Notes on 'New Service'/ 'New Instruments of Service' to bring out the objectives underlying the service/activity, the financial implications thereof, the time schedule for completion and commissioning, the contribution expected to be made in the economic and industrial field etc. maybe clearly set out in the Notes to be included in the Demands for Grants; and

Full details of subsidy on food transactions, such as average cost price and sale price, actual price paid to the indigenous producer and the country from which it is imported, administrative expenditure, freight, incidental and other charges, losses in transit, handling and storage, per quintal subsidy etc should be given in the Explanatory Memorandum on the Budget

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The Detailed Demands for Grants are laid by the respective Ministries on the Table of Lok Sabha after the Demands for Grant is submitted to the Parliament, well in advance of the date of discussion fixed for that Ministry's Demands. These Demands show distinctly the programmes/activities/schemes or organization for which provision in a year is " 1 lakh or more and in respect of schemes etc. costing " 10 lakhs and above. The Detailed Demands for Grants show the further break-up by reflecting the 'Object' wise expenditure. Plan and Non Plan provisions are also shown distinctly. These Demands also include schedules listing grants to bodies other than State

Governments in excess of certain limits, details of number of staff for which provision is made and a schedule listing important items of Non plan expenditure. A schedule giving details of works costing " 10 lakhs or more individually is also added in the Detailed Demands of the concerned Ministries/Departments.

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(c) Receipts BudgetEstimates of receipts included in the "Annual Financial Statement" are

further explained and analyzed in the "Receipts Budget". The document gives details of revenue receipts and capital receipts and explains the estimates. Trends of revenue receipts and capital receipts over the years and details of External Assistance received are also included.

Receipts Budget has two parts-Part 'A'- Revenue Receipts: The estimates of Revenue receipts, both

tax revenue and non-tax revenue are explained in this part. The tax revenue section includes statements on Corporation tax, Taxes on Income other than Corporation tax, Wealth tax, Customs, Union Excise Duties, Service tax and taxes of Union Territories. The non-tax revenue details include statements on Interest receipts, Dividends and Profits, Other Non Tax Revenue and Non Tax Revenue of Union Territories.Part 'B'- Capital Receipts: In this part, the details of capital

receipts which include market loans, external assistance, small savings, Government provident funds, accretions to various deposit accounts, depreciations and reserve funds of departments like Railways, Telecom etc. are given.

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The Receipts Budget also contains 12 Annexes containing details as under-

Annexure 1- State-wise distribution of share in Central taxes/duties;

Annexure 2 -External assistance-receipts and repayments country/organization -wise;

Annexure 3-Debt position of the Government of India, having statements on- Liabilities of the Central Government, Assets, Guarantees Given by the Government and Asset Register;

Annexure 4-Details of current rupee loans of the Central Government;

Annexure 4A- Special securities converted into marketable securities;

Annexure 5- Trends in Receipts;Annexure 6-Trends in expenditure;Annexure 7- Analysis of Tax and Non Tax Revenue

Receipts included in Annex 5;Annexure 8- National Small Savings Fund;Annexure 9- Reconciliation between estimates of Receipts

shown in Annual Financial Statement and Receipts Budget ;

Annexure 10-Tax Revenues raised but not realized (principle taxes);

Annexure 11- Arrears of Non Tax Revenue; andAnnexure 12- Revenue foregone under the Central Tax

System

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(d) Expenditure Budget Volume -1Expenditure Budget Vol. No. 1 deals with the revenue and capital

disbursements and gives the estimates in respect of "Plan" and "Non-Plan" and explains the variations in the estimates of both. It also gives analysis of various types of expenditure.

Expenditure Budget Vol. 1 also contains information in separate Statements and Annexes, providing information relating to General Expenditure, Non Plan Expenditure, and Plan Outlay. The Statements relating to Gender Budgeting and Budget provisions for schemes for the Welfare of Children, position on Guarantees given by Central Government and outstanding, as at the end of March last are also shown in this document. The estimates of budgetary expenditure shown in this document exclude the transactions of Railways and Telecom except to the extent of Plan investments made from the General Budget. This Statement is prepared in three parts-

Part I- GeneralPart II- Non Plan Expenditure

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Part I of the document contains the following:Summary of Expenditure;Expenditure by Ministries/Departments;Expenditure of Union Territories without Legislature;Revised Estimates of the current year with brief

explanations for variations between Budget Estimates and Revised Estimates, both in respect of Plan and Non plan.

Budget Estimates of ensuing year for both Plan and Non plan.

Part II of the Expenditure Budget Volume I briefly describes important items of Non plan expenditure and contains the following statements-

Non Plan Expenditure for ensuing financial year;Non Plan Expenditure by broad categories;Non Plan Subsidies- Interest Subsidies;Non plan Subsidies-Other Subsidies;Departmental Commercial Undertakings;Non Plan Capital Outlay;Non Plan Grants and Loans to Public Enterprises;Non Plan Grants and Loans to State and U.T

Governments; and(ix) Grants and Loans to Foreign Governments.

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Part III of the Expenditure Budget Volume I describes Plan Outlay and contains the following statements-

Plan Outlay for ensuing financial year;Central Plan Outlay by

Ministries/Departments;Central Plan Outlay by Heads of Development;Plan Investments in Public Enterprises;Resources of Public Enterprises;Central Assistance for State and Union Territory

Plans;Plan Grants and Loans to State and UT

Governments;Direct Transfer of Central Plan Assistance to

State/District level Autonomous Bodies/ Implementing Agencies;

Estimates for Provision for Externally Aided Projects;Gender Budgeting;Schemes for Development of Scheduled Castes and

Scheduled Tribes;Budget Provisions for Schemes for the Welfare of

Children.

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The Expenditure Budget Volume I contains in addition to the above statements, six Annexes viz.-

Budget Provisions by Heads of Account;Reconciliation between expenditure shown in

Demands for Grants, Annual Financial Statement and Annex 1;

Trends in Expenditure;Contributions to International Bodies;Grants in aid to private institutions, organizations

etc.; andEstimated strength of Establishment and provision

therefore.Expenditure Budget Volume- 2

To understand the objectives underlying the expenditure proposed in the Demands for Grants, a brief description of the various items of expenditure on major programmes included in the Demands together with the reasons for variation between the budget estimates and revised estimates for the previous year and the budget estimates for the current year are given in this volume.

In other words, the Expenditure Budget Volume- II incorporates the Notes on Demands for Grants also with the net provisions for the scheme/programme.

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Finance BillThe Finance Bill is presented in fulfillment of the requirement under

Article 110 (1) (a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. It is accompanied by a Memorandum explaining the provisions included in it.

Finance Bill is a Money Bill defined in Article 110 of the Constitution and as required under Article 117 of the Constitution, introduction of the Finance Bill needs the prior recommendation of the President, except for reduction or abolition of any tax.

Memorandum Explaining the Provisions in the Finance Bill

The purpose of this document is to facilitate understanding of the taxation proposals made in the Finance Bill, with the provisions and their implications explained.

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(h) Budget at a GlanceThis document shows in brief, receipts and disbursements

along with broad details of tax/non-tax revenues and other receipts and Plan and Non-Plan expenditure, including allocation of Plan outlays by sectors as well as by Ministries/Departments and details of resources transferred by the Central Government to State and Union Territory Governments. This document also shows the revenue deficit, the gross primary deficit and the gross fiscal deficit of the Central Government.

(i) Highlights of BudgetThe key features of the Budget indicates, inter alia, the

prominent achievements in various sectors of theeconomy, new initiatives announced in the Budget, allocation of funds made in important areas, and a summary of tax proposals.

j) Status of Implementation of Announcements made in Finance Minister's Budget Speech

This document indicates the action taken and action in progress on the announcements made in the last budget. The position reflected is updated to first week of February of the reporting year.

(k) Fiscal Responsibility and Budget Management Act related documents:Macro-economic Framework Statement;Medium Term Fiscal Policy StatementFiscal Policy Strategy Statement

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Mandated under Section 2(5), 3(4), 3(3), and 3(2) of the Fiscal Responsibility and Budget Management Act, these statements reflect interalia, the growth prospects of the economy with specific underlying assumptions, the strategic priorities of Government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowing and guarantees, and sets out three-year rolling targets for four specific fiscal indicators in relation to GDP at market prices namely (i)Revenue Deficit, (ii) Fiscal Deficit, (iii)Tax to GDP Ratio and (iv) Total out-standing Debt at the end of the year.

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SOME OTHER IMPORTANT BUDGET RELATED DOCUMENTS:

Detailed Demands for Grants:The Detailed Demands for Grants are prepared by

the Ministries/Departments on the basis of the provisions made in the Demands for Grants. The Detailed Demands for Grants are laid on the Table of the Lok Sabha, after the presentation of the Budget but before discussion on Demands for Grants commences. These Detailed Demands show further break-up by objects of expenditure, provisions of programmes/organizations for which the provision is rupees one lakh or more individually. The Detailed Demands also show actual expenditure by sub-heads during the previous year separately, for Plan and Non Plan. The estimates are followed by details of recoveries taken in reduction of expenditure in the accounts. In both the Demands for Grants and the Detailed Demands for Grants, totals are struck

Major Head wise and Section wise (Revenue and Capital Sections), with reference to-

Total provision;Charged provision; andVoted provision

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Economic Survey:Economic Survey of any year gives a detailed

analysis of the economic situation of the country and is presented to Parliament a few days before presentation of the Annual Budget for the ensuing year. It includes a Statement about the position of budgetary transactions of the Central and State Governments, and their overall surplus/deficit positions in the current year and the past trends.

In the Economic Survey, along with an analysis of the economic situation of the country, detailed analysis is given of the trends in the current year in agriculture, industry, infrastructure, employment, money supply, imports, exports, prices, foreign exchange reserves, balance of payment etc as compared to selected earlier years. This document is helpful for a better appreciation of the proposals for resource mobilization and budgetary allocation for the ensuing year, and is therefore presented to the Parliament ahead of the presentation of the Budget for the ensuing year.

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CLASSIFICATION OF TRANSACTIONS:The conventional pattern of classification followed

organisational lines, consisting mainly of the listing of receipts by various types of taxes, and expenditures by reference to the spending department rather than to its objects or purposes. With the phenomenal growth and diversity in the functions ofgovernments involving huge outlays, accounts acquired a new dimension. Accordingly the necessity for a more meaningful classification of transactions for presentation of government operations in terms of functions, programmes and activities became increasingly apparent. A study team subsequently established by the Government of India, with the Deputy Comptroller and Auditor General as Convener investigated the feasibility of devising a uniform classification for the budget, accounts and plan, and of presenting the objectives and purposes of government expenditure clearly in terms of functions, programmes and activities. Following the recommendations of the team, the classification of transactions on a function-cum- programme basis was introduced from 1st April, 1974.

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While the functional approach to classification is now well established, the divergence between plan programmes and accounting classification increased over the years. To bring about a closer correlation between plan schemes and Accounts Heads, the Government constituted a committee which included a representative of CAG to review the existing classification and rationalise the Account Heads where required. As a result of this review in consultation with the CAG, the new accounting classification came into force from 1 April 1987. While the basic principles and broad structure of accounts were retained, certain new sub-sectors were introduced, a new coding pattern was devised and other changes initiated so that expenditure on plan programmes could be extracted directly from the accounts. The list of Major and Minor Heads of Accounts of Union and States published by the Government of India gives the relevant details.

SIX TIER ACCOUNTING CLASSIFICATION AND WHAT EACH TIER SIGNIFIES:

The Budget of Government is linked to the accounts and Government transactions accounted for under the Consolidated Fund, Contingency Fund and the Public Account of India.

1. Major Head-2. Sub-Major Head-3. Minor Head-4. Sub-Head-5. Detailed Head-6. Object Head-

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CLASSIFICATION SYSTEM:1. Major Head-2. Sub-Major Head-3. Minor Head-4. Sub-Head-5. Detailed Head-6. Object Head-Each Division in the Consolidated Fund and the

Public Accounts is divided into sectors, which may in some cases be further divided into sub- sectors and then into the six tiers of accounting classification. The number of classification in the Detailed Demands for Grants are not allowed to go beyond the standard six tiers indicated as under-

4 digits (Function);2 digits (Sub-Function);3 digits (Programme); 2 digits (Scheme);2 digits (Sub-Scheme); and2 digits (Object Head or Primary Units ofAppropriation)

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LIST OF MAJOR AND MINOR HEADS OF ACCOUNTS:

Based on the classification into Revenue and Capital divisions, the transactions are grouped into sectors which are further sub-divided into sub-sectors and Major Heads of account. The major heads normally indicate within each sector/sub-sector the broad functions of a particular department of Government.

In the four digit codes allotted to the major heads, the first digit indicates whether the major head is a Receipt head/ Revenue expenditure head/ Capital expenditure head or a Loan head. The last three digits are the same for corresponding major heads in Revenue receipts section/Revenue expenditure section/Capital receipts/expenditure section and Loans and Advances section. The Receipt Major heads are assigned the block0020 to 1999, Expenditure Major heads on Revenue accounts from 2011 to 3999, Expenditure Major heads on Capital accounts from 4001 to 5999 while all Capital receipts are classified under Major head 4000. Major heads under Public debt is from 6001 to 6004 and those under loans and advances/inter-state settlement and Contingency Fund from 6001 to 8000 and the Major heads under Public Account from 8001 to 8999. In the loan section Major heads have been opened with reference to functions and purposes instead of the beneficiaries.

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The Sub Major heads are opened under a Major head to record those transactions which are of a distinct nature and of sufficient importance to be recorded exclusively, but at the same time allied to the function of the Major head.

The Major and Sub-Major heads are sub divided into Minor heads. The minor heads correspond to programmes or broad groups of programmes. It is output oriented rather than organization or input oriented. The classification upto the Minor Head level are prescribed by the Controller General of Accounts in consultation with the C&AG and is common to the Central and State Governments.

The complete list of Major and Minor Heads of Account along with the Correction Slips therein are available at the website of the Controller General of Accounts (CGA) at cga.nic.in.

The detailed coding pattern for the six tier classification is explained below.

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CODING PATTERN:Major HeadA Four digit code has been allotted to the Major

Head, the first digit indicating whether the Major Head is a Receipt Head or Revenue Expenditure Head, or Capital Expenditure Head or Loan Head. If the first digit is '0' or '1' the Head of Account will represent Revenue Receipt, '2' or '3' will represent Revenue Expenditure, '4' or '5' - Capital Expenditure, '6' or '7' Loan head, (4000 for CapitalReceipt) and '8' will represent Contingency Fund and Public Account.

Adding 2 to the first digit of the Revenue Receipt will give the number allotted to corresponding Revenue Expenditure Head, adding another 2 - the Capital Expenditure Head and another 2 - the Loan Head of Account, for example:

0401 Represents the Receipt Head for Crop Husbandry

2401 the Revenue Expenditure Head for Crop Husbandry

4401 Capital Outlay on Crop Husbandry 6401 Loans for Crop Husbandry

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Sub-Major HeadA two digit code has been allotted, the code starting from '01'

under each Major Head. Where no sub major head exists it is allotted a code '00'. A standard nomenclature 'General' has been allotted code '80' so that even after further sub-major heads are introduced the code for 'General' will continue to remain the last one.

Minor HeadsThese have been allotted a three digit code, the codes starting

from '001' under each Sub- Major/Major Head (where there is no Sub Major Head). Codes from '001' to '100' and few others like '750' to '900' have been reserved for certain standard Minor Heads. For example, Code '001' always represents Direction and Administration. Non Standard Minor Heads have been allotted Codes from '101' in the Revenue Expenditure series and '201' in the Capital and Loan series, where the description under capital/loan is the same as in the Revenue Expenditure Section, the code number for the Minor Head is the same as the one allotted in the Revenue Expenditure Section. Code numbers from '900' are always reserved for Deduct Receipt or Deduct Expenditure Heads.

The Code for 'Other Expenditure' is '800' while the codes for other grants/other schemes etc. where minor head 'Other Expenditure' also exists is kept as '600'. This has been done to ensure that the order in which the Minor Heads are codified is not disturbed when new Minor Heads are introduced.

The coding pattern for Minor Heads has been designed in such a way that in respect of certain Minor Heads having a common nomenclature under various Major/Sub-major Heads, as far as possible, the same three digit code is adopted.

Computer Cell of the CGA's organisation is required to be consulted before any new code is allotted or existing code (at whatever level) is altered

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Sub Head/Detailed Head/Object HeadSub Head represents schemes, the detailed head

represents Sub-Schemes while the Object Head represents the objects/items (e.g. Pay, DA, HRA, Rewards, Gratuity, etc.) on which the expenditure is incurred. Each of these levels has been allotted a two digit code. Wherever it is not feasible to break up the objects of expenditure into such details, the codes provided for aggregates of certain items may be used instead for computer processing. For example, where it is not possible to indicate Pay, DA, HRA, CCA etc. separately, the code for salaries may be used for representing the aggregate of these items. The Object Heads have been prescribed under Government of India's Orders below Rule 8 of Delegation of Financial Power Rules. The power to amend or modify these object heads and to open new Object Heads rest with Department of Expenditure of Ministry of Finance on the advice of the Comptroller and Auditor General of India.

The Budget Heads exhibited in estimates of receipts and expenditure framed by the Government or in any appropriation order should conform to the prescribed rules of classification in accordance with Rule 74 of the General Financial Rules.

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IMPORTANCE OF OBSERVING CORRECTNESS INCLASSIFICATION

CO-RELATINGTRANSACTIONS AS CLASSIFIED IN THE

BUDGET/ACCOUNTS WITH THE FUNCTIONS:Keeping in view the form of accounts prescribed under

the Constitutional provisions under the advice of C&AG, the Detailed Demands for Grants presented by the Ministries to Parliament, should also adopt the same six tier numeric codification pattern.

However till 1973-74, Heads of Development were more often not in conformity with Heads of Account. As a result, the Budgets and Accounts till 1973-74 did not reflect in a meaningful manner the various developmental activities of the Government under the Plan. There was thus dichotomy between the Plan documents on the one hand and the Budget and Accounts on the other. In order to enable the programmes and activities of all organizations and Departments to be identified in the Budget and accounts, the Administrative Reforms Commission (ARC) recommended a review of the Classification System of Government transactions in Budget and Accounts to have a closer conformity with the Plan Heads. A Revised Classification Structure was developed in pursuance of the above recommendations of the ARC prescribing a classification structure up to Minor Head level.

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Secondly, the Accounts Heads prescribed for the classification of accounts in the General Accounts were also not always identical with those in Demands for Grants, which were adopted by the Ministry of Finance/Finance Departments of States. This dichotomy and the fact that the Plan Heads still did not fully conform to Account Heads, made it difficult for the audit to reconcile the two sets of figures and give auditcertificates in respect of expenditure under different Plan Heads. A Revised Structure of Classification, effective from 1st April, 1987 was therefore prescribed, to resolve this dichotomy and has been functional ever since, with the Ministries/Departments instructed to keep in view the following:

The numbers of tiers of classification should not go beyond the standard six tiers;

Standardized code numbers allotted to the Major, Sub-Major and the Minor Heads in the 'List of Major and Minor Heads of Account for the Union and States' should be followed in the Detailed Demands for Grants;

At the Object Head level also, the Standard heads and codes prescribed by the Ministry of Finance shall be adhered;

The Codes allotted by the Controller General of Accounts shall be followed for sub-heads and detailed heads; and

The Ministries/Departments should disaggregate each composite item of expenditure in the Detailed Demands for Grant and show it upto Object head as indicated in the standard object heads.

(Extracts From Rule 8 (2) of DFPR and GOI Decisions therein.)

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PROCEDURE FOR OPENING NEW HEADS OF ACCOUNTS:

As per Rule 73 of the General Financial Rules (Authority to open a new Head of Account), the List of Major and Minor Heads of Accounts of Union and States is maintained by the Ministry of Finance (Department of Expenditure - Controller General of Accounts) which is authorised to open a new head of account on the advice of the Comptroller and Auditor General of India under the powers flowing from Article 150 of the Constitution. It contains General Directions for opening Heads of Accounts and a complete list of the Sectors, Major,

Sub-Major and Minor Heads of Accounts (and also some Sub / Detailed Heads under some of them authorised to be so opened).

In case of certain post budget developments wherein expenditure provision is required to be made under these heads which are not already available in the Budget, the Ministries/Departments are authorized to open new Sub-Heads/ Detailed Heads and/ Object Heads as required by them in consultation with the Budget Division of the Ministry of Finance, subject to certain conditions. Normally, a new head is allowed to be opened only in cases where the Budget provision is available (for Reappropriation to the new head) or has been obtained through a Supplementary Demands forGrant. However, in exceptional circumstances Ministries/Departments may be permitted to open the heads in anticipation of obtaining the budget through Supplementary Demands. In such cases, the new heads can be operated only upon obtaining the budget through Supplementary Demands for Grants. The Principal Accounts Offices may open Sub/Detailed Heads required under the Minor Heads falling within the Public Account of India subject to the above stipulations.

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UNIFORMITY IN STRUCTURE OF ACCOUNTS OF UNION AND STATE GOVERNMENTS:

Under Article 150 of the Constitution, the accounts of the Union and the States shall be kept in such form as the President may, on the advice of the Comptroller & Auditor General of India prescribe. Due to this constitutional provision there is uniformity in the structure of the accounts of the Government of India and the State Governments upto the first three tiers of classification of the Major Heads, Sub-Major Heads and the Minor Heads. This uniformity in the accounting classification helps in maintaining the required inter-relationship between the accounts of the Central Government and the State Governments, since there is substantial transfer of resources from the Centre to the States. The standardized code numbers allotted to Major, Sub-Major and the Minor Heads' in the 'List of Major and Minor Heads of Account for the Union and States' as maintained by the Controller General of Accounts are required to be followed in the Detailed Demands for Grants.

The bottom three tiers viz. the Sub-Head, Detailed Head and the Object Head have been delegated to the State Governments and Ministries/Departments to be opened through their Budget and as may be needed to suit the requirement of each State Government or the Ministry/Department. However, the sub-heads should not be multiplied unnecessarily and new ones are advised to be opened only when really necessary.

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ECONOMIC AND FUNCTIONAL CLASSIFICATION OF THE BUDGET:

Apart from the Accounting Classification System, the Budget documents also indicate the Economic Classification i.e. (i) General Services (1), (ii) Social Services (2), (iii) Economic Services (3), and (iv) Un-allocable (4), i.e. those which cannot be related to specific purposes. The figures (1,2,3 and 4) indicated against each category are prefixed to the concerned Major Heads under the Accounting Classification system to provide for an easy co- relation between the two systems of classification.

An economic classification of Budget is necessary to make it useful for economic analysis and to determine how these transactions influence the behaviour of other sectors of the economy. For this purpose, Government transactions (both receipts and expenditure) are arranged under significant economic categories so that these can be related to important categories of transactions influencing the behaviour of other sectors of economy

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The methodology adopted by the Central Statistical Organization in computing National Income is used in making economic classification of Budget. In the Centre, the economic classification of each year's budget is done by the Economic Division of the Department of Economic Affairs in the Ministry of Finance. For the purpose of comparison, the figures of accounts of the preceding years, Revised Estimates of the current year and Budget Estimates of the ensuing year are re-classified under the relevant economic categories. These re-classified figures are published by the Reserve Bank of India in its Reports on Currency and Finance. With the re classified figures mentioned above, six sets of accounts are prepared, viz. (i) Transactions in commodities and services and transfers: Current Account of Government Administration, (ii) Transactions in commodities and services and transfers: Current Account of Departmental Commercial Undertakings; (iii) Transactions in commodities and services and transfers: Capital Account of Government Administration and Departmental Commercial Undertakings; (iv) Changes in Financial Assets: Capital Account of Government Administration and Departmental Commercial Undertakings; (v) Changes in Financial Liabilities: Capital Account of Government Administration and Departmental Commercial Undertaking; and (vi) Cash and Capital Reconciliation Account of Government Administration and Departmental Commercial Undertakings. From these six sets of accounts, the following figures of economic significance are derived, through an accounting analysis.

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The Central Government's Total Expenditure;The Central Government's Final Outlays;Capital Formation out of the Budgetary Resources of

Central Government;Net Capital Formation and Savings of the Central

Government;The various measures of Deficit in the Central

Government's Budgetary Transactions; andIncome Generation by the Central Government.

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